NCFE Back in The Game

National Century Financial Enterprises priced a healthcare receivable- backed term ABS deal totaling $275 million on Friday, Oct. 13, issued by NPF XII, Inc. The deal was led by Credit Suisse First Boston with Banc One Capital Markets as co-manager on the transaction.

The two classes of ABS issued were rated Aaa and Aa3 by Moody's Investors Service and AAA and AA- by Fitch, Inc. and Thomson Financial Bankwatch. This issuance is the first of any ABS sponsored by NCFE rated by either Moody's or BankWatch.

"Our relationship with NCFE has been in place for some time here at Moody's," said Mack Caldwell, the analyst rating the deal. "It just never materialized in a rating, and again, it's not that we wouldn't - it's just that we haven't, either because the timeframe didn't work out or the request for information or other timing considerations."

Norman Last at Thomson was eager to rate the new issue because of his depth of knowledge of NCFE's ABS deals from his days at Duff & Phelps Credit Rating Co., while Moody's Caldwell initially became familiar with the deals in his days as investor counsel at Brown & Wood.

"There was a bit of an education process for us with [the deal], but we were well acquainted, on a theoretical level, with what the various risks are in healthcare receivables securitizations," Caldwell noted.

CSFB had been lead underwriter on many of the NCFE sponsored transactions prior to this issue, but only played a co-manager role on the Series 2000-1 transaction earlier this year because of the defection of some of NCFE's bankers on the deal to Deutsche Bank.

The combination of the bankers that remained at CSFB and the additions to the CSFB team under Joe Donovan's direction, however, won the loyalty of top management at NCFE. Further, CSFB stepped up its commitment of time, resources and capital to help NCFE deal with the controversy surrounding allegations of fraud in NCFE's receivables portfolio (see ASR 5/22/00) and the investigation led by Fitch which followed it.

While Moody's was concerned about the allegations against the company contained in a series of anonymous letters that surfaced this past May, the rating agency's own investigations and trust of the company gave it confidence to go ahead and rate the current deal.

"We require complete disclosure from the company vis-a-vis the allegations of fraud, and we felt that what they offered us was very forthright and plausible," Caldwell said.

According to a source at CSFB, the strength of CSFB's advice and its capital commitment led NCFE to remove Deutsche from its role as agent on a bank deal that the company needed to renew during the summer and led to NCFE appointing CSFB to finish the job.

The source at First Boston said there were several factors which contributed to NCFE's decision to break its relationship with Deutsche Bank, including Deutsche's need for an extremely time-consuming, unnecessarily harsh audit of the company and various capital commitments which the bank reportedly withdrew.

A source at Deutsche Bank would not comment in detail on these explanations, only saying that CSFB's statements "are completely inaccurate. It's their interpretations of the facts."

The combination of the additional scrutiny provided by adding Moody's and Thomson to rating the new series, as well as aggressively spreading the NCFE story by CSFB's bankers, led to an oversubscribed floating-rate transaction with the Class A pricing at 1-Mo Libor +0.42% and the Class B pricing at 1-Mo Libor +0.72%, which was much (six basis points and 26 basis points, respectively) tighter than the pricing that Deutsche Bank achieved for NCFE on the first NPF series issued this year.

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